Connect with us

Bitcoin

5 Things You Need To Know Before Investing In Bitcoin

Published

on

Before you venture into Bitcoin as a means of making extra money, it is expedient that you do a background research and understand what you want to invest in. Bitcoin investment is not a gamble or a lucky toss, as many people often see it. There are certain intricacies which a prospective investor must take note of. Some of these intricacies would be discussed in this article. 

What is Bitcoin? 

Bitcoin is a digital currency. It is a medium of exchange like any other fiat such as USD, EUR, etc. However, it differs from fiat in the sense that it was designed to exchange digital information through a process known as cryptography. Bitcoin leverages on blockchain technology in order to gain decentralization, transparency, and immutability. It empowers ordinary people because no centralized power is required to transact with it. Currently, Bitcoin stands as the most popular and most valued digital currency, largely as a result of the fact that it was the first digital currency invented by Satoshi Nakamoto in 2009.

How Bitcoin Enable P2P Transaction

Bitcoins can be sent directly between two parties through the use of a public key.

The public key – wallet address – contains a string of letters and numbers, from 26 to 34 characters, usually generated from the private key. It can be compared to your bank account number that enables you to receive cash into your bank account.

One interesting thing about Bitcoin is that, peer-to-peer transfer incurs very minimal transaction fees and solves the problem of the steep fees usually charged by traditional financial institutions. 

1. How Bitcoin’s Value is Determined

Source: Quora / David McDonald

Before you invest your hard-earned money into Bitcoin, it is imperative for you to understand that its value is not just determined by chance or luck. It follows a pattern and obeys certain rules.

The price of Bitcoin is governed by the law of demand and supply. This simply means that buyers and sellers of this digital currency, often control its value.

The price of Bitcoin is highly volatile and as such, it is a high-risk investment; at least, for now. If there are more sellers than buyers, the price drops and vice versa.

One interesting aspect of Bitcoin is that it has a fixed supply. This means that there is currently a limit placed on the amount of Bitcoins that can exist. As a result, It is widely believed Bitcoin will scarce in the future as many people would clamour to acquire and hold it.

Bitcoin has a maximum supply of 21,000,000. Unlike fiat currencies, Bitcoin cannot be minted at will by a central body because it is limited, algorithmically. As such, after the limit is exceeded, it becomes practically impossible to create new Bitcoins. 

Bitcoin also has other desirable features. It is fast, borderless and decentralized with the potential to change the financial world for the better.  Not only does it currently have value as a payment system, it also possesses value as a store of wealth. It is also useful because it is built on open protocols. Essentially, anyone can innovate on top of it and make the system better.

Bitcoin also has an undeniable utility even when compared to other, newer cryptocurrencies. There is simply no other cryptocurrency that is as widely used and integrated at this point in time. Through network effects, we have started to see exponential growth rates, which create value as more people start using Bitcoin, and more merchants start to accept it as a means of payment.

2. Bitcoin is Highly Volatile

Source: CoinMarketCap.com

Volatility means that an asset is subject to fluctuations, which makes it risky to hold on to, at any given point. This is because at the drop of a hat, its value may substantially increase or reduce. The more volatile an asset is, the more people would want to limit their exposure to it, either by simply not holding on to it or by hedging.

Volatility also increases the cost of hedging, which is a major contributor to the price of merchant services. Simply put, if Bitcoin volatility decreased, the cost of converting into and out of Bitcoin would decrease as well.

The price of Bitcoin is highly volatile and unstable and it makes it a high-risk investment. The graph above, shows Bitcoin price fluctuations from January 2019 to September 2019.

The total market capitalization of Bitcoin ($ 174.24Bn as at the time of writing). As such, Bitcoin price market can easily be manipulated by the big-time players known as the Whales. These Whales can crash the market hard or grow it in an insane manner.

Before you invest in Bitcoin, there is a statement you can’t do without, and that is: “Invest what you can lose”. Simply put, in Bitcoin investment, you can easily lose your capital within some time if you don’t apply good risk management.

3. Bitcoin Investment is Not a Gamble

Notwithstanding that the price of Bitcoin is highly volatile and unstable, it follows some patterns which can be predicted to an extent, mostly by using fundamental analysis, technical analysis and sentimental analysis.

Many people venture into Bitcoin investment with the mindset that it works by luck or that the industry can easily be navigated by gambling on decisions. This is the reason many are easily liquidated. Before anyone ventures into the Bitcoin, it is advisable that one understand some basic concepts in order to have a good grasp of these analysis.

For instance, the price of Bitcoin as the time of writing this article is 9478.60 USDT. It is true that no one accurately knows the direction this price movement would take in the next hours, but with the knowledge of the above-mentioned analysis, one can considerably predict the direction it would take for the short term, and make good profit from it.

Being great at these analysis does not, however, guarantee a win in all your predictions. What it mostly does is, it gives you an advantage over other persons who do not possess such skills. It is also worthy of note that people with these analytical skills also often possess good risk management skills, such as the use of stop-loss in trading. This is unlike amateur investors who always believe that luck would definitely shine on them. 

5. Bitcoin is Not The Only Digital Currency In The Crypto Market

Top Cryptocurrencies

It is often very funny when one asks people if they have heard anything about cryptocurrency, and many of them answer in the negative; but when one asks them about Bitcoin, they answer positively.

Many people think that Bitcoin is the only crypto or digital currency in existence. There are currently over three thousand digital currencies in existence, but of course, Bitcoin is the dominant and most valued digital currency. It also has the highest market capitalization.

There are other digital currencies that have the tendency of being more profitable like Bitcoin but one needs to be very careful and selective when choosing other cryptocurrencies.

The reason it looks as though Bitcoin is the only reliable option when it comes to digital currency investment, is because most digital currencies were invented recently.

To choose other investment options other than Bitcoin, there are some criteria a digital currency needs to possess before it can be seen as a good investment option. For instance, before a digital currency receives a green light from pro-investors, it must have real developers, good utility and a tangible solution it brings to humanity. 

A good example is Ethereum. According to Coinmarketcap, Ethereum is the second largest cryptocurrency platform by market capitalization, behind Bitcoin. Ethereum is a decentralized open source blockchain featuring smart contract functionality. 

Ether is the cryptocurrency generated by Ethereum miners as a reward for computations performed to secure the blockchain. As of May 2020, Ethereum serves as the platform for over 260,000 different cryptocurrencies, including 3 of the top 10 cryptocurrencies by market capitalization. The price of Ethereum as at the time of writing this article is 236.18 USDT.

Conclusion

Evidently, investing in Bitcoin is not as complex as some people think, but it is also not as easy as some other people think. It often requires resilience and a good grasp of what both Blockchain and Bitcoin entail. 

Comments
Continue Reading
Click to comment

Leave a comment:

Bitcoin

Bitcoin.org gets hacked, scammers run BTC giveaway scam

Published

on

Earlier today, Bitcoin.org, the oldest cryptocurrency website registered by the founder of Bitcoin, Satoshi Nakamoto, recently got hacked. Scammers ran a BTC giveaway scam with a promise to return double the amount users send to the named address. In the end, the scammers were reported to have collected $17,764 before the website was taken down. The website was inaccessible for a few hours after the incident, but normal service has been resumed.

To bring users’ attention to the hack, a pseudo-anonymous Twitter account with the name Cobra took to Twitter to reveal the news and claimed that the website may be offline for some days. He also clarified through his tweets that Bitcoin.org has never been hacked and that the breach must have been due to a lapse on the part of Cloudflare- the web provider that the website is hosted on.

“Bitcoin.org hasn’t been hacked, ever. We move to Cloudflare, and two months later we get hacked. Can you explain where you were routing my traffic too? Because my actual server didn’t get any traffic during the hack” he tweeted.

The scam on the website was perpetrated through a giveaway. Visitors on the website were greeted with a popup, asking them to send crypto to a Bitcoin wallet via a QR code and receive double the amount in return. The fake message showed that the Bitcoin Foundation was giving back to the community and that the giveaway will be limited to the first 10,000 people. This was made to draw more people into the scam.   According to an analysis on the scam address done by Reddit Sleuth, it was presumed that a chunk of the 0.4BTC came from the scammers themselves to add an element of credibility to the claim. At the time of writing this report, Bitcoin.org is once again, back to life.

How popular is the Bitcoin giveaway scam?

Bitcoin giveaway scam is quite popular among hackers as it allows them to make fast money without tampering with anyone’s wallet. In 2020, Twitter handles of top crypto celebrities, politicians and influencers were hacked to run Bitcoin giveaways. While the scammers were apprehended, the value of Bitcoin was not affected.

Today’s scam on Bitcoin.org did not affect the price of the coin either. Despite the Evergrande debt crisis and the fluctuations bedevilling the crypto market within the week, Bitcoin increased by 2.05% within the last 24 hours, thereby moving from $42,789 to $44,378.

Comments
Continue Reading

Bitcoin

El Salvador’s Bitcoin adoption – What you need to know

Published

on

El Salvador made history (and headlines) after becoming the first nation to endorse and approve the world’s most popular cryptocurrency, Bitcoin, as a legal tender. The move makes Bitcoin acceptable for transactions within the Central American country alongside the U.S dollar, which has been serving as the paper currency since 2001. This comes after the so-called “Bitcoin Law” came into force after passing legislation in June of 2021. El Salvador’s government announced that it had purchased 400 Bitcoin in 2 tranches of 200 each and plans to get more in the future.

The move to adopt Bitcoin has been justified by the government’s need to boost financial inclusion in the country. It is estimated that 70% of El Salvadorans do not have access to financial services and the government believes that Bitcoin can help close the gap. The Bank of America has outlined a few benefits that they believe will result from El Salvador’s bitcoin adoption. These include promotion of financial digitization, streamlining remittances as well as opening the country to digital currency miners. However, not all agree that the move is a step in the right direction.

Amongst the detractors of the scheme are the International Monetary Fund and the World Bank, each having warned El Salvador about the risks of Bitcoin’s use as legal tender. The World Bank has been irked by what it described as “environmental and transparency shortcomings” with bitcoin, while the IMF cited “economic and legal concerns” in relation to the move.

Other than the push back from these international bodies, there has been some internal opposition to the adoption of Bitcoin. Citizens had held protests over Bitcoin’s adoption in August and about 67.9% of respondents in a poll said they disagreed with the government’s decision to adopt crypto. The results of the poll showed that 8 in 10 people had little confidence in the use of bitcoin as the currency.

In spite of the criticism, El Salvador’s government is moving forward and has reportedly installed 200 Bitcoin ATMs across the country. And in response to the World Bank’s environmental concerns, El Salvador’s president, Nayib Bukele, has said the country plans to power mining activities using renewable energy from the country’s volcanoes. In order to incentivize the use of Bitcoin in the country, any citizen who signs up for the country’s “Chivo” wallet will get 30$ worth of bitcoin.

All in all, the adoption of a cryptocurrency by a sovereign nation is seen as a testing ground for many, as this is a use case Bitcoin has never experienced in its 12-year history. Countries such as Brazil and Panama seem to be watching the move to draw insights on whether to follow suit.

Comments
Continue Reading

Bitcoin

Is Bitcoin Still a Good Investment?

Published

on

Source: Decentralize Africa; Bitcoin Investment

The above question is being asked a lot due to the surge and drop of bitcoin over the past months – so aspiring investors are curious about whether the coin remains a lucrative investment. Bitcoin is the world’s most treasured and appreciated digital currency in terms of its worth in the open market and this fascinates a vast scale of investors. While there have been ups and downs, Bitcoin still poses to be a good investment. 

When compared to various cryptocurrencies, Bitcoin has been proven to have innumerable benefits; 

Diversification

Diversifying your crypto portfolio is very important and investing in bitcoin, amongst others, can help you do just that. Several foundations and pension funds have added bitcoin to their portfolio over the years. Investment strategists have gone on to say that adding bitcoin to your portfolio may improve returns without notably increasing volatility. 

Working Capital and Cash Flow 

Bitcoin has shown to be a financial strong suit in terms of liquidity. At inexpensive prices, you can quickly swap Bitcoin for fiat currency or gold. The level of cash flow is often dependent on how many users, or in this case investors, a platform has. The liquidity of cryptocurrencies is likely to skyrocket if adoption rises and more people invest in Bitcoin as a viable means of exchange. 

Basic Trading And Operations 

More often than not, investing in stocks or company shares would require a license for the former and a visit to a broker for the latter. However, with Bitcoin, trading is made easy. Buying and selling Bitcoin is made easy and you can store them in your wallet with little to no hassle. Trading in Bitcoin is also instantaneous. 

Digitalized Storage And Repository

Due to the upgrade of technology, cryptocurrencies are not subject to the traditional form of investment and storage like banks. Instead, the data is stored in a peer-to-peer network of nodes and duplicated across the world. 

Digital Gold 

Owing to its limited accessibility, Bitcoin is referred to, by many, as the “digital gold”. Like with gold, which has to be extracted from the earth, Bitcoin has to be “mined” through the use of computer software and thus, cannot be produced at the snap of fingers. Bitcoin has been said to have features akin to gold, silver and the likes. 

Brand New Opportunities 

The fact that Bitcoin is still current in the world of cryptocurrencies brings room for fresh opportunities. Its newness poses a high price alteration and volatility, which may lead to vast profits if invested properly. 

Bitcoin has always been a smart expenditure. The rate at which individuals adopt the coin is proof that it is still a good investment. Bitcoins will help in diversifying your portfolio, it will help in simple and stress-free trading, it will help in electronic and digital storage, amongst many others. Bitcoin as a long-term investment is feasible because the supply is fixed. It goes without saying that Bitcoin has the potential to become a global currency.

Comments
Continue Reading

TRENDING

%d bloggers like this: